Civil Regulation—How Nonprofits are Co-regulating Business

Through our scientific genius we have made of the world a neighborhood; now through our moral and spiritual genius we must make of it a brotherhood.—Rev. Martin Luther King, Jr.
Don’t ask for power. Seek influence. It lasts longer. —E. M. Forster, Howard’s End

There was a time when relations between the nonprofit and for-profit sectors were simple. On those not-so-frequent occasions when the sectors recognized each other’s existence, relations were either frictious or philanthropic. On the one hand some companies supported the work of nonprofits with donations of time and money. On the other, some nonprofits complained about corporate practices, often calling on government to take a stronger line. Relations were limited the cash or the clash. In recent years things have become more complicated. With globalization, the two sectors have emerged as economic and cultural superpowers engaged in complex webs of interaction on a range of social and environmental challenges. They’ve become too big to ignore each other.

Today corporations no longer want to just sign checks for good causes but want to become involved in those causes. Meanwhile fewer nonprofits are taking checks without asking “how did you make this money in the first place?” and demanding greater corporate responsibility. Moreover, some nonprofits are actually defining what the appropriate response to such questions should be, by establishing systems for setting and monitoring the social and environmental performance of corporations. The result is that today’s business environment is characterized by a kaleidoscope of codes, audit systems and certifications, which are backed up by nonprofit watchdogs snapping at the heels of corporate laggards. Although using very different tactics, when looked at as a whole, nonprofit advocacy and campaigning is actually regulating corporate behavior. In Terms for Endearment I define this as civil regulation—the quasi-regulation of business by civil society.

Why Now?

During the late 1990’s nonprofit advocacy targeted directly at corporations appeared to increase markedly in both the U.S. and Europe. This helped translate social and environmental concerns into strategic business risks and opportunities, so that once-mothballed ideas about business ethics and corporate responsibility found their way back into CEO-speeches and annual reports. Moreover, globalization had an affect on the mindset of nonprofit advocates, who became frustrated with the apparent capture of national governments by the interests of big business and the snails pace of intergovernmental agreement and action on social and environmental challenges. In a world where the majority of the world’s 100 largest corporations are corporations, not states, they woke up to where the power is—big business. In that same world, many companies’ share value is tied to its brand—its reputation—thus nonprofit activists woke up to their own power as potential brand-bashers.

As brand-bashing campaigners made sweatshops, child labour, deforestation, pollution and genetic engineering all hit the headlines, so CEOs in targeted companies hit their PR panic buttons. Often the initial reaction of a corporate under siege was to deny responsibility and to undermine the credentials of their critics. But whether it was Shell and Nigeria, Monsanto and terminator seed technology, Chiquita and workers rights, big companies nearly always took policy U-turns and began engaging with their critics. Therefore while traditional clash tactics are alive and well, the web of relations between the sectors now includes various forms of novel collaboration.

Towards a Typology of Relations

We can classify the corporate-related activities of nonprofits according to their style —confrontational or collaborative, also known as the “stick” or “carrot” approach—and by the activities’ place in relation to the market—whether or not trading is involved. Nonprofit’s tactics depend on their ideology, the skills they possess, the success or failure of previous campaigns, and the responsiveness of the businesses
in question.

Forcing change in corporate behavior involves using confrontational tactics. These include campaigns for the boycotting of companies or products—powerful catalysts for change in a variety of industries. Boycotts of consumer products from companies such as Levi Strauss and Pepsi, because of these companies’ operations in Burma, were successful in persuading them to withdraw from the country (but not before Pepsi had lost a $1 million contract with Harvard University because of the student-led ‘Free Burma Campaign’ boycott).

General attempts to increase public outrage via the media are also important tactics in this category, as are demonstrations at corporate offices, retail outlets, or annual general meetings. Direct actions against biotechnology corporations in Asia and Europe, including the destruction of crops of genetically modified plants, added to pressure that resulted in policy U-turns from Monsanto, Novartis and other large agribusinesses.

The publishing of critical research is also a key nonprofit activity for forcing change. More traditional yet still very important activities include court action and lobbying for legislation.

Promoting change in corporate behavior through collaborative activities includes negotiating agreements with corporate management, advising companies on best practice, endorsing or promoting best practice (thereby supporting ethical consumerism and socially responsible investment), conducting and publishing helpful research, and jointly developing new products or techniques. The World Wildlife Fund’s (WWF) work with timber retailers which began in the U.K. and then spread worldwide, involves a number of these techniques, with the WWF negotiating standards and targets for responsible wood sourcing with member companies and providing advice on implementation issues. Environmental Defense has developed a number of projects from solid waste management to carbon emissions, while emphasizing its financial independence from the corporations with whom it works. The Ethical Trading Initiative, which brings together companies, unions and development groups to increase learning on how to improve labor conditions in the suppliers of U.K. companies, is another example. Member nonprofits provide research and advice on implementation issues as well as endorsing the labor standards being promoted by member companies.

In recent years a number of nonprofits have started to provide services that are facilitating change in corporate practice, while generating revenue for their activities. This includes consultancy services that aim to help corporations with change processes, but also systems of company or product endorsement. Some nonprofits run certification systems, such as the Rainforest Alliance’s Eco-OK program for agricultural products. Set up in 1992, the Alliance has certified, along with its partner organizations in Latin America, tens of thousands of hectares of banana plantations, including all of those managed by Chiquita.

There are now nonprofits that specialize in providing corporations with monitoring services, such as Vérité, which focuses on labor rights issues. Accreditation bodies such as the Forest Stewardship Council (FSC) and Marine Stewardship Council (MSC) set standards for a particular industry through a multi-stakeholder process and then accredit organizations to go and audit companies using these standards; successfully certified companies can market their products accordingly. Although these stewardship councils are supported by grants, membership fees and accreditation revenues, their ultimate success in facilitating change in corporate practice depends on the acceptance of their certifications in the business community and the success of their logos in the marketplace.

Another group of nonprofit activities whose success depends on sales in the marketplace are those aimed at producing change in the market, by providing alternative production systems based on a different value system to mainstream business practice. Nonprofit-run alternative trading companies such as the Dutch Max Havelaar, the U.K.’s Fairtrade Foundation and Traidcraft Exchange, TransFair USA and Oxfam Fair Trade Company are examples. The products these companies deal with include coffee, chocolate, tea, honey, bananas, oranges, sugar, fruit juice, crafts, fashions, paper and cards.

These are trading activities and their impact depends on sales in the marketplace. Interestingly, they can be regarded as confrontational to mainstream corporations, because they advertise themselves as ethically preferable to such companies and compete with them for a market share. One example is Cafédirect, a U.K.-based marketing company that promotes a brand of fairly traded coffee. In 1999, Cafédirect already had a four percent share of the U.K. roasted coffee market and two percent of the freeze-dried market.

Although the entry point for relations is often a forcing change approach, the trend for facilitating change approaches is strong, particularly with the establishment of multi-stakeholder accreditation councils. Whichever set of tactics is dominant at one time or another, effective civil regulation of corporate behavior depends on the availability of the entire range of activities.

A Mixed Blessing

In providing a means by which people can hold corporations accountable for their actions and change their policies and operations, civil regulatory initiatives offer a novel channel for people to regulate the activities of global corporations. It is a channel of participatory or direct democracy, with the benefits and drawbacks that this entails. One limitation arises because of the limited geographical reach of nonprofit advocacy and consumer activism—therefore certification and labeling schemes may merely serve to shift international trading patterns and have little overall effect. A further limitation relates to the potential of civil society to mobilize activists and consumers when the ability to organize, take direct action and speak freely is not always protected—you must have the ability to wield the “stick” to realize the benefits of civil regulation. Therefore, in order to become active in civil regulation, nonprofits in countries with poor civil liberties need to be linked with supportive nonprofits in countries with developed consumer politics. A fourth limitation relates to the democratic credentials of civil regulation. Those who claim to be acting for the interests of a particular group have a great deal of power in determining the future of that group; therefore the accountability of nonprofits to the constituents they purport to represent is ever more important.

In the last few decades we have seen the globalization of the world economy and the unveiling of a form of hyper-capitalism where the future of corporations is decided by a handful of investment managers who are primarily interested in short-term share price. The collective opinion of these investment managers is the compass from which the courses of corporations are set, and in turn the course of governments seeking the favor of investors. Hyper-capitalism has been spiraling out of control, becoming disconnected from the people living in its midst. The campaigning activities of nonprofits combined with the progressive work of some business leaders gives us hope that the negative effects of globalization can, at times, be moderated. Yet, the sustainability of our planet and the livelihoods of its people are so important is it not worrying that we are having to throw-together new ways of regulating economic behavior for our common good? The development of civil regulatory initiatives has been necessitated by the inability of governments to work together for the benefit of all life on planet Earth. We’ve been picking up the pieces of a global governance disaster. It’s time national leaders opened their eyes and see how people in business and civil society have been doing their work for them. It has never been more important for progressive business and nonprofit leaders to work together and turn Earth Summit II in Johannesburg later this year into a global wake-up call for the worlds leaders. They must start cooperating for the environmental security and social progress of all.

Box: The People’s Earth Declaration

In taking up the battle to make corporations more accountable, you become part of a growing civil society. As the tenth anniversary of the Earth Summit approaches, it is worth reflecting on the international nongovernmental forum’s declaration made there in Rio de Janiero:

We the people of the world will mobilize the forces of transnational civil society behind a widely shared agenda that bonds our many social movements in pursuit of just, sustainable and participatory human societies. In so doing we are forging our own instruments and processes for redefining the nature and meaning of human progress and for transforming those institutions that no longer respond to our needs. We welcome to our cause all people who share our commitment to peaceful and democratic change in the interest of our living planet and the human societies it sustains.

Let us hope that in Johannesburg national leaders will join the cause.

About the Author

Jem Bendell is an associate with the New Academy of Business in the U.K. and a scholar of the Aspen Institute Non-Profit Sector Research Fund. He is the editor of Terms for Endearment: Business, NGOs and Sustainable Development, by Greenleaf Publishing, (2000), (www.jembendell.com). His next book Civil Power! Influencing Business in a Global Economy for Our Common Good will be out in the summer.